ChiTrib On McDonald's Management Changes

7 comments:

Anonymous
said...

Operators should not wait for MCD to "halt all investments". The operators should halt it themselves. The operators need to protect their own organizations by making these important decisions for their own good which will be in the best interests of the system. The operator can't add debt to their own organization unless they themselves sign the note. Blaming MCD will not get us very far.

You'll make the decision to do what is in the best interest of your business. But eventually, if your interests include growth or rewrite, you will DO what they want you to do, if you want to stay in the system after your current license agreement expires.

True. But, it is also true that just because you do everything asked there is no guarantee you will be rewarded with growth or rewrite. In addition, growth by getting new stores has not been all that good. Across the system many new stores have missed sales projection by up to a million dollars many more by $500,000.00. Rents have become outrageous. I know more than a few operators that have gotten new stores and after adding the new debt, agreeing to twelve to fourteen per cent rent, sales projections being missed by $500,000.00, impacting another one of your stores they are worse off than before the growth. It is more common than you may think. The best way to grow, in my opinion, is to buy out your neighbor who may have 8.5% rent and has already completed everything on the NRBS. Those old and lower rents make a huge difference in cash flow. My opinion is, that it is not what you take in, it is what you keep.

But it is guaranteed that if you don't do what they require, you will not be eligible for growth or rewrite, nor will you be able to buy one of those low rent stores from your neighbor. You're in a no-win situation unless the laws change protecting the franchisor.

There is no question that MCD has the upper hand in all conversations with the operator. However, if you meet all the expansion screens for growth they will be careful about how they talk to you. When buying from another operator and you are a qualified and willing buyer and there is a willing seller they put themselves in a awkward position not approving the sale. They will explain that they have other macro goals such as diversity or other nonsense. They can do whatever they want to do and they will. They don't even have to explain anything. These facts along with other factors is making these franchise's less valuable. The fact is that the operators are no longer partners with MCD in building this once great business. Operators are simply a tool like financing or design for them to use and abuse. The only effective advantage the operators have is to control their debt. Once an operator allows the debt to exceed a certain point all they have done is to buy themselves a job and not a very good one. With high debt which MCD will encourage all you are doing is working for MCD, the bank and the IRS and taxes are going up not down. Assume new franchise laws are passed and MCD does not comply. Who is going to sue them?? All of this is very negative and discouraging. Regardless, MCD remains a very good system but the operators today must be far more careful with their decisions than in the past. MCD and their recommendations are no longer a "slam dunk". My concern is that so many of their decision makers in the regions are no more qualified to make recommendations than many people walking around in the street. They are all gunning for their next promotion and the success of the region or the operators is meaningless to them. That's a fact! It is also a fact that many new stores are not performing, MRP's give you nothing, products are perceived to be inferior, MCD leadership has been a dismal failure (the jury is out on these new guys) the operator community is the weakest it has ever been, it has been indicated that over half of the operators are ineligible for growth because of financial reasons due mainly to having too much debt. In many regions drive thru sales meet or exceed 70% of total sales. Those are our most loyal and cheapest customers. They don't take hand full's of napkins, they don't flush our toilets, they don't fill up or trash bins, and they are frequent given good and complete orders. Why does the company keep insisting that the operators keep spending hundreds of thousands of dollars in the lobbies? I know it makes their buildings more valuable but a big portion of the business is in the DT. 65% to 70% is a big number! MCD is far from perfect but it can be salvageable if we/they concentrate on being profitable more responsive to the customers and stop trying to be an agent of social change and over reacting to our critics. Give the customers what they want. Making money is not sinful.

This is not the McDs of the Ray Kroc era, and you will never see that again. You will never see an Operator invent a new sandwich like was done in the past, our pool of operators is vastly larger than those days, yet that does not matter, What matters is only the money McDs make in rent. Don't ever forget this.